Insurance Weirdness, Part II: Is The Policyholder Your Client Or Your Raw Material?

This is the second part in the Weirdness series. In our last episode, we examined the question of whether the producer is a seller or supplier. In this article, we will discuss the implication of that on the person who buys insurance.

If we consider this question, it starts to sound sort of creepy and icky. Maybe we are conjuring up thoughts of Soylent Green (a 1973 science fiction film).

No, this is not anything like that, I hope. 🙂

However, like in Part I, thinking differently about the relationship between the policyholder and the insurer can be a useful exercise. Again, we will first examine a few thoughts around this and then figure out what we may be able to do with it in the context of innovation.

Weird Defined…Again

First, let’s refresh ourselves about the things that make insurance “weird.” Again, weird means counterintuitive and something that doesn’t generally characterize other products:

A) It’s a product that doesn’t work unless many diversified people buy it.

B) It’s a product that you can’t buy if you are already in need of its benefit.

C) It’s a product that money alone cannot buy.

In this discussion, we will focus more on B and C.

It’s Not Them, It’s You

There are more than a few people who have asked me if they can “get” insurance after they have had some kind of a loss—usually something health or dental related. I say that not to poke fun at the stupidity of anyone…other than the industry. After all, if the consumer understood the basic weirdness of insurance really well, a lot of the confusion, deprioritization and regulatory mandate would look different.

In addition to that issue, the fact is that unhealthy or otherwise high-risk people cannot buy insurance even if they had the money. They purchase it with their behavior, their good health and then the money.

And the fact that consumers do not understand this is only part of the problem; the whole pool concept is not understood either. I’ve also marveled at how many people feel ripped off that they pay insurance premiums and don’t get anything in return if they don’t have a claim. They don’t see the benefit of having been insured in case the unexpected WOULD have happened.

Right Answer, Wrong Question

My gut tells me that there are two big things standing in the way of consumer understanding of these weird but important things. The first is that we have never really tried to explain it—at least not in the last 30 years. What we do explain is the price, the features, the reasons why you need it, etc. But we don’t explain how the whole thing works, how prices are set, and why it makes more sense than not having insurance at all. The second reason may have to do with the question at hand. If we treat policyholders as clients versus having them understand their role in making the system work, they are expecting a customer experience that looks like that of a consumer packaged good or service.

Avoiding the ick factor, of course, perhaps our job is to figure out how to explain that the policyholder’s role is to contribute to a pool for the greater good of everyone else who is in it. If everyone contributes a little, they all get the benefit of using more of the resources should they ever need to in the future.

Only What They Need

Believe it or not, the insurance industry is probably the first to deploy collaborative consumption in an organized way. Collaborative consumption is the widespread increase in sharing of goods, services, information, etc., that is fast making buying, renting and leasing obsolete. It is, of course, made possible by the Web and social media.

A few good examples of collaborative consumption are Zipcar, Redbox and eBay. Each of these companies allows people to use a little “part” of something so they don’t have to buy the whole. They are not driving all the time they are only watching their movie one or two times, and they have plenty of other things in their home that have lost value to them but are worth something to someone else. The insurance industry used that same idea, which basically answers the question “why should I save up my own money for a possible disaster when I can be covered right now for pennies on that same dollar by leveraging the power of the pool?” Well, I’ll be darned. Who knew the insurance industry was so far ahead?

So repositioning the policyholder as the fuel for the engine could have implications in the following areas:

How might it change the way consumers behave in ways that impact their rate classes?

How might it adjust our view of competition? Is it really the other insurance company, or is it the idea of not being in the pool at all?

How might it impact peer pressure if they knew others in their community were affecting their pool experience in some way?

How might it change the circumstances by which a consumer feels “ripped off?”

How might it change the propensity to seek to be a member of a pool?

Here are a few major changes I can imagine from repositioning the consumer as raw material:

Might this idea create insurance as a bilateral contract versus a unilateral one? A contract where the consumer has accountability for more than just paying premiums?

Might it change the tools we use to communicate about the offering? Instead of rows and columns of numbers, perhaps we should create a mini model of an insurance pool and how the math works the same way Sesame Street might have a fun movie about how a donut is made.

Perhaps there would be an algorithm that would demonstrate the difference between being insured and being self-insured versus being insured with Product A versus Product B or Company Y versus Company Z.

Might it crack open the code of trust that enables consumers to understand why they pay the rates they pay and reduce frivolous complaints and lawsuits?

Might it start social movements to be responsible around insurance?

Who should we take our cues from? Great communicators? Entertainers? Teachers? Gen Y offers us the personality that goes very well with collaborative consumption and efforts for the greater good. This could be an enormous opportunity to begin flipping the paradigm of “Sold, Not Bought.”